Karachi: Askari Bank Limited (AKBL) has significantly underperformed in the banking sector's recent rebound, despite trading at 1.2 times its 2024 earnings, raising a multitude of investor questions about its market position and future potential.

According to JS Global, despite AKBL's favorable price-to-book (P/B) ratio of 0.3x—substantially lower than the sector's average of 0.8x—the bank's forward return on equity (ROE) over the next five years, assumed at 16% based on 12% interest rates from mid-CY25, is notably below the sector's average of 22%. This discrepancy has resulted in its shares trading at a significant discount, even though banks with similar ROE metrics are valued at approximately 0.5x P/B, suggesting a potential undervaluation of AKBL. The recent analysis by JS Global suggests a fair P/B ratio of 0.4x for AKBL, implying a 30% potential capital appreciation. Furthermore, the increase in AKBL’s capital adequacy ratio (CAR) might result in a dividend yield of 12% for 2024, adding to the investment appeal.

The bank's investment strategy also differentiates it from its peers. A significant portion of AKBL's investments in government securities uses repo borrowings, linked to the central bank's policy rate, which is expected to decrease, benefiting the bank's net interest margins (NIMs). This strategy is expected to contribute to a 46% year-on-year increase in earnings per share (EPS) in CY24, outpacing its peers largely due to a 54% increase in net interest income (NII).

However, concerns loom over the bank's reliance on government deposits, which comprise 42% of its total deposits, potentially impacted by the full implementation of the Treasury Single Account (TSA). This could lead to significant withdrawals by the government, affecting AKBL’s liquidity and financial stability.